Life Savings Guarded By 2-pound Chihuahuas

October 23, 2002|By ROBERT RENO Columnist

SEC

On a number of occasions in the past year, President Bush has used his office to encourage people to keep playing the stock market.

This is not inconsistent with his support for a partial privatization of Social Security that would permit recipients to channel a portion of their benefits toward more risky investments that also offer hope of higher returns.

But is being a cheerleader for the stock market the proper role for a commander-in-chief? Arthur Levitt, who chaired the Securities and Exchange Commission longer than any person, suggests it isn't.

"I do not think presidents should deal with markets," Levitt told Fox News. "I don't think presidents should opine on where stocks are selling."

The first chairman of the SEC was, curiously enough, Joseph Kennedy, father of John F. Kennedy.

Joe Kennedy used his earlier experience as a predatory speculator in the 1920s to go after his former cronies. He perfected the theory that the best way to catch rogues is to have been one yourself.

Until Levitt came along and made it his business to infuse the SEC with a new zeal and purpose, there was never a more effective SEC chairman than old man Kennedy.

The present SEC chairman, Harvey Pitt, suffers in comparison.

"Harvey Pitt is no Joe Kennedy," said London's Financial Times.

"He had to recuse himself at least 29 times from SEC decisions during his first year in office, because they involved former clients. Pitt's reluctance to get tough with corporate criminals and accountants is so apparent that there is a growing demand for his ouster."

Many people regard Levitt's tenure from 1993 to 2001 as the golden age of SEC enforcement. But this ignores his failures, which included repeated rejections by Congress of his attempts to get more money for the SEC and to expand its enforcement role.

Jeff Birnbaum, the ubiquitous TV pundit, says, "Fate conspired to give (Pitt) a mandate for market regulation that Arthur Levitt could only dream of. The corporate malfeasance over the past year has put Pitt in an uncomfortable position: He is a diehard deregulator at a time when more regulation is widely viewed as necessary to prevent future scandals."

Pitt's only strength in his perilous position is the company he kept. Who better than Pitt -- with his former close ties to the accounting industry -- to expose these former friends? This was the same strength that made a rascal like Joe Kennedy such an effective SEC chairman.

Fortunately, Levitt has just published a must-read book, "Take on the Street," in which he argues "There is no one, in fact, that represents individual investors full-time. They are the most overlooked and underrepresented interest group in America."

The critical exposure of Americans to stock market losses is no more evident than in the growth of the mutual fund industry. In 1950 people had only $1.2 billion invested in mutual funds. Last year they had $7 trillion stashed there.

No wonder Bush, even with his charmed new role as the president who can do no wrong, is now feeling his fanny scorched by the heat of recent stock losses that are being reported on mutual fund quarterly statements.

"Warren Buffett likes to say that mutual funds choose their directors from the kennels of Chihuahuas, not Dobermans," Levitt says.

This leaves investors with the impression that their life savings and hopes for a secure old age are being guarded by animals weighing as little as two pounds.

Reno is a columnist with Newsday in Long Island, N.Y. His columns run Wednesday.